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15.24 Discontinued operations
Publication date: 28 Feb 2022
us IFRS & US GAAP guide
Differences exist between IFRS and US GAAP for discontinued operations, including the definition, unit of account, and presentation and disclosure.
15.24.1 Discontinued operations—definition
The definitions of discontinued operations under IFRS and US GAAP focus on similar principles and apply to a component of an entity that has either been disposed of or is classified as held for sale. However, a disposal must result in a strategic shift that has a major effect on an entity’s operations and financial results to qualify as a discontinued operation under US GAAP. Examples of a strategic shift are more limited under IFRS. US GAAP also includes several examples that provide guidance on how to interpret a major effect on the reporting entity’s operations and financial results for the disposal to be considered a discontinued operation. IFRS does not contain similar examples.
US GAAP |
IFRS |
A disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. A strategic shift that has (or will have) a major effect on an entity’s operations and financial results may include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity.
In addition, any business or nonprofit activity that upon acquisition meets the held for sale criteria is required to be presented as a discontinued operation regardless of whether it represents a strategic shift that has (or will have) a major effect on a reporting entity’s operations and financial results.
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A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale and (a) represents a separate major line of business or geographic area of operations, (b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or (c) is a subsidiary acquired exclusively with a view to resale.
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15.24.2 Discontinued operations—unit of account
IFRS and US GAAP both refer to a component of an entity when describing those operations that may qualify for discontinued operations reporting; however, the definition of “component of an entity” for purposes of applying the discontinued operations guidance differs under IFRS and US GAAP. In practice, this difference generally does not result in different conclusions regarding whether or not a component of an entity that either has been disposed of, or is classified as held for sale, qualifies for discontinued operations reporting.
US GAAP |
IFRS |
In accordance with ASC 205-20-20, a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity may be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group. We do not believe that a component can be at a lower level than an asset group because, in order to be a component, the cash flows must be clearly distinguishable from the rest of the reporting entity.
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In accordance with IFRS 5.31, a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.
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15.24.3 Discontinued operations—presentation and disclosure
Presentation and disclosure requirements related to discontinued operations differ under US GAAP and IFRS. Differences exist related to the presentation of comparative periods on the balance sheet and disclosure of significant continuing involvement with a discontinued operation after the disposal date.
US GAAP |
IFRS |
When a discontinued operation is disposed of or classified as held for sale, the assets and liabilities of the discontinued operation are presented separately in the asset and liability sections, respectively, of the balance sheet for that period and for all prior periods presented. Even if a discontinued operation is disposed of by sale before the end of a reporting period and therefore there are no assets and liabilities held for sale to be presented at the current balance sheet date, the assets and liabilities of the discontinued operation must be presented separately as held for sale in the prior period balance sheet.
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In accordance with IFRS 5.40, when a discontinued operation is disposed of or classified as held for sale, the assets and liabilities of the disposal groups should be classified as held for sale in the balance sheet in the current period, but should not be reclassified in the prior periods to reflect the classification as held for sale.
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A reporting entity is required to disclose information about its significant continuing involvement with a discontinued operation after the disposal date. It must continue to make these disclosures until the results of operations of that discontinued operation are no longer presented in the income statement. If a reporting entity retains a noncontrolling investment in a disposed component and accounts for the component under the equity method, additional disclosures are required related to the equity method investment retained.
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IFRS does not require disclosure about significant continuing involvement with a discontinued operation after the disposal date.
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